British Telecom has agreed a deal to plug its pension deficit with £4 billion.
The deal means BT will pay down the deficit more quickly than previously agreed and resolves a long-running dispute with investors and could lead to higher dividends.
BT has the UK’s largest privately run pension scheme which is held by hundreds of thousands of former and current employees.
The agreement saw BT’s shares rise to a four-year high on Friday after it said that the deficit would be reduced later this month when it makes a top-up payment of £2 billion before the end of the tax year.
The decision marks a change in strategy from cost cuts and improved efficiency to fund paying down the deficit in its pension fund. BT has a plan agreed to clear the deficit over 17 years.
The new estimate for its deficit is less than previously thought and allows the company to be more innovative in other areas of the business as there are fewer obligations now placed on it in terms of plugging the gap in its pension fund. Plans such as building a super-fast fibre network could be accelerated.
A new valuation puts the deficit at less than half the £9 billion that was estimated in 2008.
Chief Executive Ian Livingston said: "This agreement under which the company makes an immediate contribution to the scheme of almost half of the deficit reflects BT's financial strength."
The new valuation on the deficit means BT will not have to pay an annual payment of £525 million rising to £856 million by 2025.
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